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Cafe Monte Bianco

Cafes Monte Bianco: Building a Profit Plan"We are facing a decision that may well affect the future of our company. I expect that each of you has adequate information to support your arguments I don't want to spend our time talking about what might be without actual data."

Giacomo Salvetti, CEO of Cafes Monte Bianco, had called the second meeting to delineate the future of the company. Manufacturing private brand coffees for supermarkets in Italy had saved Cafes Monte Bianco three years ago. However, it was not clear to him whether the company should continue to invest in this market.

Cafes Monte Bianco's top management team was all in the room with the exception of Roberto Bianchi, R&D manager, who was in Colombia. The rest f the team were Giovanni Calvaro, marketing director; Paolo Cantara, manufacturing director; Dino Bastico, financial officer; and Carla Salvetti, director of strategic planning.

Cafes Monte Bianco, located in Milan, was a manufacturer and distributor of premium coffee. Monte Bianco coffees, distributed throughout Europe, had a reputation for producing some of the finest coffees on the continent. The company had been founded in the early part of the century by Mario Salvetti, grandfather of the current CEO. Mario Salvetti, after spending several decades in South America working at coffee plantations, had come back to Italy to combine the best beans that he had encountered during his career. Quickly, Monte Bianco's coffee became known around Milan for its taste and high quality. Mario passed this knowledge to his son, Ruggero, who passed it on to Giacomo. The Salvetti's family had owned the company for over eighty years.

Every year, Giacomo spent two months traveling around the world visiting coffee plantations, learning about new beans, and maintaining his relationships with coffee producers. The company also had a laboratory with five people who tried new combinations of flavors and tested quality standards for products already in the market. These people were in close contact with producers and also traveled frequently to visit plantations.

The Future of Cafes Monte Bianco

Giacomo, intent on surpassing his grandfather's success and making a name for himself, wanted to grow the business aggressively. Over the past five years, he had expanded capacity building an expensive, state-of-the-art facility. The performance of Cafes Monte Bianco had been excellent during 2000 (see Exhibit 1 for pro forma financial statements). An important reason for the success was the manufacturing of private brands for two supermarket chains in Italy. Although Giacomo had at first opposed the idea, the market downturn in 1998 convinced him that private brands were a good alternative to fill up capacity and cover fixed costs.

Several retailers had approached Monte Bianco with requests to supply coffee that could be distributed under their private brand label. If the company was to serve them, however, it would have to reduce its presence in the premium coffee market in 2001 to handle increased private brand capacity requirements. The theoretical capacity of all coffee production for 2000 was 350,000 kilograms per month. The last phase of the expansion, just finished in December 2000, had added additional capacity of 150,000 kilograms per month. The cost of this expansion was six billion liras with an expected life of 15 years.

The previous week, Giacomo had met with his top management team to discuss how to allocate manufacturing capacity. The discussion had been very emotional, with managers arguing passionately in favor of their view. Carla Salvetti, Giacomo’s cousin, argued forcefully for a full transition to private brands. Private brands, she said, had saved the company during the last recession when the demand for premium coffee dried up. On the other Roberto Bianchi argued that premium coffee was the essence of Monte Bianco. He believed that giving all production capacity to private brands...

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...﻿ CaféMonteBianco (CMB) has the hard decision of determining their next strategy. They are faced with a decision to either continue with their current mix of private and premium coffees or switch to a lower cost all private brand coffee. Giacomo is concerned about the perception of the company if they were to switch to all private brands, however, if it is in the best interest of the company to do so he is willing to explore that route. Since they are growing rapidly they need to determine which strategy is best. There are benefits and drawbacks to both scenarios. Taking on the private brands only would create a demand that can be consistent, full capacity can be utilized, inventory can be maintained, and there are significant cost reductions. However, the cash flow is damaging due to a delay of payment from retailers, and the margins on the products are much lower than the premium brand.
Based on taking on private brands only, CMB’s financials would look as follows:
Private Label Profit
Income Statement
Period ending December 31, 2001
Estimated
2001
2000
Revenues
52,800,000
56,112,408
Costs of goods sold
42,918,000
33,233,867
Gross margin
9,882,000
22,878,541
Marketing expenses
-
4,155,980
R&D expenses
832,033
3,328,130
Selling expenses
1,251,149
3,574,710
Administrative expenses
2,376,000
4,752,000
Interest expense
3,825,000...

...Engels; Short report CafeMonteBianco
Be2D2 7/10/12
There must be some serious decisions to have a successful company. CafeMonteBianco is searching for success and that is why they need to have a change in their company. They need to make a decision about if they will go for premium or private.
There are two different choices. The premium is more luxurious and it also has a better quality. The private is the standard beans they sell in the market. The question is; will they choose for private or premium.
My opinion about this is that private will be more successful than the premium. Under near I will explain thy private has more advantages.
If they will go further with the luxurious version the fixed cost will be higher and unfortunately the output will depend on the production. Also the premium brand cannot be holded on stock. That is because the coffee beans will lose their freshness and quality. In exhibit 2 we could see that the premium brand is too much various in the market. This means there is no guarantee for production.
On the other hand the private brand will have lower fixed costs. This would be a price of 781 million liras. Also the market is more stable. Unfortunately the prices of private are much lower than the premium but the output would depend on how many retailers they decide to serve. This means; more retailers, more money. Retailers pay much more...

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To analyze this case, the analyst conducted liquidity, solvency and profitability ratios for CafésMonteBianco along with sales and income projections for operating the business under both private label and premium brands. The analyst has found that the firm utilizes high leverage to achieve ROE. Further, it is the opinion of the analyst that the firm should abandon private label brands and market its own premium brand; thereby leveraging its industry reputation as a fine purveyor of coffees.
CafésMonteBianco Liquidity Analysis: The current ratio is 0.57 and the quick ratio is 0.41. This is due to higher liabilities and is an indicator of poor liquidity. The Inventory turnover ratio is a healthy 13.83, which means the total Days in Inventory are 26.39 days, about average for the food industry. However, the total Days Sales Outstanding (collection period) are almost 61 days, which indicates lower quality of Accounts Receivables. This may be because private brand retailers delay payments up to 90 days, which reduces cash flow into the company.
CafésMonteBianco Solvency Analysis: The Debt-to-Total Asset ratio is 0.79 which is very high. It indicates lower solvency. Further, the 3.87 Debt-to-Equity Ratios suggest that the company owes $3.87 in debt for every $1 in equity. In other...

...﻿
CafesMonteBianco
Memo
To:
Mr. Giacomo Salvetti
From:
Andrea Yates
cc:
Prof. Susan Murray
Date:
September 5, 2013
Re:
Private Label
Per your request, I developed a profit plan and financial assessment for CafesMonteBianco possible strategy change to private label. I have determined we should look at maintaining our strategy of selling premium brand and private label coffee.
Profit Plan
Sales
I forecasted sales for 2001 compared to 2000 would decrease by 3,312,408,000 liras due to the reduced sales price of private label coffee.
Operating Expenses
Our operating expenses will be lowered significantly by going strictly to private label. We will be able to eliminate marketing costs, as well as, reduce selling costs, research and development costs, and administrative costs by 12,440,161,000 liras. Additionally, fixed costs will be lowered due to our increased capacity from 3,500,000 to 6,000,000.
Profits
Even with the increased capacity and decreased spending in SG&A, we will not be able to make as much in Net Profit as we were in 2000. We will have an estimated 333,828,000 liras shortfall.
Liquidity
If we switch to a complete private label strategy, I am concerned about the liquidity of CafesMonteBianco and our ability to keep the necessary inventory and raw materials on hand to meet demand. When...

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Team 5: Giulia Beltrame
Antonio Silvio Buonamano
Salvatore Cianci
Alvise Pizzini
3. What assumption did you make to complete your analyses? How critical are these assumption to your conclusions? What other information would you ask to improve the quality of the analysis?
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* among the assets, in the balance sheet, we consider cash as operating cash on hand that doesn’t produce interests and all operations are carried out through the credit line;
* constant stock inventory;
* initial finished good inventory of 174000 kg, zero at the end of the year;
* 90 days is the medium time to collect cash from private brand customers, but for premium coffee is 30 days;
* assets are at the same level of the previous year (as long ago as 2000, the cost of 6 billions of additional capacity was capitalized);
* in the depreciation fund there are also 400 millions depreciation of investment of capacity expansion (6billions/15 years);
* 30days of debt terms;
* unchanged credit line (25 billions) with the assumption of 11% debt rate and 3% credit rate;
* no repayments of long term debt; interests on long term debt estimated at 4%;
* fiscal debt due by 2002;
* no variations in capital stock inside shareholders’ equity and retained earnings;
* positive cash flows (earnings) are generated from private brand sales of the last 3 months and from last month premium coffee...

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3. Any Other Managerial/Cost Accounting Text
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EVALUATION AND GRADING
Student performance in the course will be evaluated and graded to the following scale:
1. Group Detailed Case Analysis…………………………….24%
2. Group Short Case Analysis………………………………..24%
3. Class Participation.………………………………………...32%
4. Final Exam………………………………………………....20%
CASE ANALYSIS
Students will work on the cases in groups of three (preferably) or four. Each group will be required to submit written Case Analysis (five pages plus Exhibits) for each of the following cases:
1. CafesMonteBianco: Building a Profit Plan
2. Compagnie du Froid, S.A.
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...MonteBianco case
CafesMonteBianco was born as a manufacturer and distributor of premium coffee and thanks to this strategy, achieved a competitive advantage throughout Europe.
Managers are considering to produce only private brand and leave production of premium coffee. Each of them entails some important aspect linked to the objective of Giacomo Salvetti to expand the capacity of business: produce premium brand was the strength point of company since the beginning ; manufacturing private brand had saved CafesMonteBianco when the market of premium brand was very volatile and it can guarantee a stability of sales volume ( at least while the contract is operative).
In according to the analysis of profit plan there are some negative aspects using this strategy. The stability of demand allows to company to use full capacity of production: considering a initial stock of 174000 kg, expected sales for 2001 would be of 6,000,000 kg for a grade D coffee; at this level of sales correspond a unit cost of 6600 liras and a total fixed costs of
3 319 500 thousands of liras. The figure 1 shows results in according to the strategy of manufacturing only private brand, achieved with a projected balance sheet and income statement of the next year.
Figura 1
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Context:
The company located in Milan, Italy.
It was found by Mario Salvetti as a manufacturer and distributor of premium finest coffees.
The company faces a hard decision that may affect their future.
The company wants to know whether or not they should keep working in the same investing.
An important meeting was there among the top management team’s members to discuss the future of the company.
The company’s performance was good in 2000. Profit was shown at the financial statement.
Giacomo Salvetti the CEO of the company needs to decide which to choose as the business strategy for the company:
1) Keep working in the premium coffee market.
2) Transfer to the private brands market.
The current capacity of the coffee production in 2000 was 350,000 K/M , with added additional capacity of 150,000K/M. The cost of the additional units was 6 billion liras.
More facts about the profitability and the liquidity were required beside the cash flow and the profit plan to quantify strategic alternatives and to help in making this decision.
The idea of changing was not easy to the CEO to accept without a clear image of the financial consequences.
The report was provided by the marketing manager showed that the premium market is very volatile. On the other hand, the private brands market is more stable. (Full capacity at the price of 8,800 liras).
Price is lower in the private market...